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The economics of global environmental risk

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Author Info
Chichilnisky, Graciela

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Abstract

This chapter focusses on global environmental risks such as climate change, an issue that must be confronted as we move into the future. It proposes sound principles of risk management that make sense in today's society generally, going beyond their role of averting and hedging climate risks. This chapter is about these and related questions. In attempting to answer them, it deals with different aspects of the theory of risk-bearing. I explain current responses to global change, focusing on the new challenges: human-induced or endogenous risks, including potentially catastrophic risks, which are not adequately treated by traditional economic analysis. In summary, we are dealing with risks that have two major new characteristics: they are endogenous and potentially catastrophic. In addition, climate risks have three more conventional features: they are poorly understood, correlated and irreversible. In all cases, this chapter proposes ways to advance our understanding of the problems. This chapter proposes ways to evaluate decisions under endogenous and potentially catastrophic risks, and incorporates often neglected features of correlated, poorly understood and irreversible risks. The analysis proposed here opens new ways of thinking and at the same time poses new challenges. At the end I indicate new areas of research.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8812.

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Date of creation: 1998
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Handle: RePEc:pra:mprapa:8812

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Related research
Keywords: risk global environment climate change endogenous risk catastrophic risk risk management mathematical modeling endogenous uncertainty policy

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Find related papers by JEL classification:
C6 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters

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  1. Chichilnisky, G. & Heal, G. M. & Tsomocos, D. P., 1995. "Option values and endogenous uncertainty in ESOPs, MBOs and asset-backed loans," Economics Letters, Elsevier, vol. 48(3-4), pages 379-388, June. [Downloadable!] (restricted)
    Other versions:
  2. Stein, Jerome L, 1992. "Cobwebs, Rational Expectations and Futures Markets," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 127-34, February. [Downloadable!] (restricted)
  3. Cicchetti, Charles J & Freeman, A Myrick, III, 1971. "Option Demand and Consumer Surplus: Further Comment," The Quarterly Journal of Economics, MIT Press, vol. 85(3), pages 528-39, August. [Downloadable!] (restricted)
  4. Loewenstein, George & Thaler, Richard H, 1989. "Intertemporal Choice," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 181-93, Fall. [Downloadable!] (restricted)
  5. Chichilnisky, G. & Heal, G., 1993. "Global Environmental Risks," Discussion Papers 1993_03, Columbia University, Department of Economics.
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  6. Malinvaud, E., 1972. "The allocation of individual risks in large markets," Journal of Economic Theory, Elsevier, vol. 4(2), pages 312-328, April. [Downloadable!] (restricted)
  7. Chichilnisky, G. & Heal, G. & Streufert, P.A. & Swinkels, J.M., 1992. "Believing in Multiple Equilibria," Papers 92-32, Columbia - Graduate School of Business.
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  8. Dixit, Avinash, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-32, Winter. [Downloadable!] (restricted)
  9. Chichilnisky, G., 1992. "Existence of a General Equilibrium with Price Uncertainty," Discussion Papers 1992_61, Columbia University, Department of Economics.
  10. Chichilnisky, Graciela & Heal, Geoffrey, 1996. "On the existence and the structure of the pseudo-equilibrium manifold," Journal of Mathematical Economics, Elsevier, vol. 26(2), pages 171-186. [Downloadable!] (restricted)
  11. Machina, Mark J, 1982. ""Expected Utility" Analysis without the Independence Axiom," Econometrica, Econometric Society, vol. 50(2), pages 277-323, March. [Downloadable!] (restricted)
  12. Stein, Jerome L, 1992. "Price Discovery Processes," The Economic Record, The Economic Society of Australia, vol. 0(0), pages 34-45, Supplemen.
  13. Malinvaud, E, 1973. "Markets for an Exchange Economy with Individual Risks," Econometrica, Econometric Society, vol. 41(3), pages 383-410, May. [Downloadable!] (restricted)
  14. Chichilnisky, Graciela, 1996. "The Future of Global Reinsurance," MPRA Paper 8334, University Library of Munich, Germany. [Downloadable!]
  15. Pindyck, Robert S, 1991. "Irreversibility, Uncertainty, and Investment," Journal of Economic Literature, American Economic Association, vol. 29(3), pages 1110-48, September. [Downloadable!] (restricted)
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  16. Chichilnisky, Graciela & Heal, Geoffrey, 1994. "Who should abate carbon emissions? : An international viewpoint," Economics Letters, Elsevier, vol. 44(4), pages 443-449, April. [Downloadable!] (restricted)
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  17. Fudenberg, Drew & Holmstrom, Bengt & Milgrom, Paul, 1990. "Short-term contracts and long-term agency relationships," Journal of Economic Theory, Elsevier, vol. 51(1), pages 1-31, June. [Downloadable!] (restricted)
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  18. Heal, Geoffrey, 1992. "International negotiations on emission control," Structural Change and Economic Dynamics, Elsevier, vol. 3(2), pages 223-240, December. [Downloadable!] (restricted)
  19. Chichilnisky Graciela & Heal Geoffrey M., 1993. "Competitive Equilibrium in Sobolev Spaces without Bounds on Short Sales," Journal of Economic Theory, Elsevier, vol. 59(2), pages 364-384, April. [Downloadable!] (restricted)
  20. Chichilnisky, Graciela, 1996. "Financial Innovation in Property Catastrophe Reinsurance: The Convergence of Insurance and Capital Markets," MPRA Paper 8333, University Library of Munich, Germany. [Downloadable!]
  21. Graciela Chichilnisky, 1996. "An axiomatic approach to sustainable development," Social Choice and Welfare, Springer, vol. 13(2), pages 231-257, April. [Downloadable!] (restricted)
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  22. Arrow, Kenneth J & Fisher, Anthony C, 1974. "Environmental Preservation, Uncertainty, and Irreversibility," The Quarterly Journal of Economics, MIT Press, vol. 88(2), pages 312-19, May. [Downloadable!] (restricted)
  23. Chichilnisky, Graciela & Belratti, Andrea & Heal, Geoffrey, 1998. "Uncertain future preferences and conservation," MPRA Paper 7912, University Library of Munich, Germany. [Downloadable!]
  24. Cass, David & Chichilnisky, Graciela & Wu, Ho-Mou, 1996. "Individual Risk and Mutual Insurance," Econometrica, Econometric Society, vol. 64(2), pages 333-41, March. [Downloadable!] (restricted)
  25. Chichilnisky, Graciela & Heal, Geoffrey, 1995. "Markets with tradable CO2 emission quotas: principles and practice," MPRA Paper 8486, University Library of Munich, Germany. [Downloadable!]
  26. Hahn, F., 1992. "A Remark on Incomplete Market Equilibrium," Papers 179, Cambridge - Risk, Information & Quantity Signals.
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